Question
Page 17 of the Medium Term Financial plan (MTFP) states that ‘the annual revenue costs of new borrowing is approximately 7% of the sum borrowed’. Between 2018/19 and 2021/22 the total amount of borrowing is expected to rise by £212 million to £539 million (page 78, MTFP). The revenue cost of the rise in borrowing will therefore be £15 million per year from 2021/22, while the revenue cost of total borrowing from 2022/23 will be £38 million.
Page 17 of the MTFP states that ‘the financing costs of any new borrowing falls directly upon the council tax payer’. Page 33 of the MTFP shows that Council Tax Revenue is approximately £100 million each year. The new borrowing will therefore be equivalent to two years’ council tax receipts and will add somewhere between 15% and 38% per year to the burden of council tax payers.
Average wages in the next five years or so are expected to rise by between 2% and 3% per year. Does the council regard this increased annual burden, adding at best 15% and at worst 38%, to council tax bills by 2021/22 as evidence that its spending plans are ‘affordable, prudent and sustainable’ as required by the MTFP, page 17?
Minutes:
Page 17 of the Medium Term Financial plan (MTFP) states that
‘the annual revenue costs of new borrowing is approximately
7% of the sum borrowed’. Between 2018/19 and 2021/22 the
total amount of borrowing is expected to rise by £212 million
to £539 million (page 78, MTFP). The revenue cost of
the rise in borrowing will
therefore be £15 million per year from 2021/22, while the
revenue cost of total borrowing
from 2022/23 will be £38 million.
Page 17 of the MTFP states that ‘the financing costs of any new borrowing falls directly upon the council tax payer’. Page 33 of the MTFP shows that Council Tax Revenue is approximately £100 million each year. The new borrowing will therefore be equivalent to two years’ council tax receipts and will add somewhere between 15% and 38% per year to the burden of council tax payers.
Average wages in the next five years or so are expected to rise by between 2% and 3% per year. Does the council regard this increased annual burden, adding at best 15% and at worst 38%, to council tax bills by 2021/22 as evidence that its spending plans are ‘affordable, prudent and sustainable’ as required by the MTFP, page 17?
Answer
I suppose the short answer is yes of course but I will give you the longer answer as well. I do not know if you have got a copy of the Medium Term Financial Plan with you but I will refer to one or two pages.
I am aware that Council finances are complicated. I have been doing it a long time so I know how complicated, so to clarify the sentence on page 17 of the Medium Term Financial Plan, which states that ‘the annual revenue costs of new borrowing is approximately 7% of the sum borrowed’, this relates only to new borrowing which is not funded by other sources of income such as developer contributions, capital receipts etc. This does not apply to all new borrowing as referred to in your question.
Can I refer you to the capital resource statement on page 87 of the MTFP, the first table on this page breaks down how the future borrowing will be repaid. The line called Minimum Revenue Provision (MRP) represents the amount the council tax payer will fund, and that states here £6,2million, £5.8million and £5.9 million. All other borrowing is funded by other means e.g. developer contributions etc.
Over the next three years the annual MRP borrowing will remain at approximately £6m per year, as I have said. The annual revenue costs of this new borrowing will be funded from within existing budgets. Therefore, as there will be no material change to these annual costs there will not be an additional burden on the tax payer.
I can therefore confirm that our financial management continues to be sound, sensible and carefully planned to deliver on the Council's ambition, delivering vital assets for the community, and creating valuable new income sources to fund escalating costs of future council services.
Supplementary Question:
At what point will additional borrowing become unsustainable in your opinion?
Supplementary Answer:
I will not allow it.